Zients for Commerce? - Wolin for Treasury? - Geithner heads to the Hill for cliff meetings - Top story: Fed to keep foot on the gas

ZIENTS FOR COMMERCE? – Lot of chatter in the system that Jeffrey Zients, the highly regarded head of the White House Office of Management and Budget and former Advisory Board Company CEO, is the top candidate to head the Commerce Department in the second Obama administration. Zients gets high marks from the private sector, especially Wall Street executives, for his low-key, non-partisan and highly data-driven approach to fiscal issues. His appointment at Commerce would signal that the White House wants to give the department, often a backwater, a higher profile in the second term. Zients has both strong White House connections, which are critical to Cabinet department success, and the executive experience that industry badly wants to see in the Obama II administration.

WOLIN FOR TREASURY? – Some buzz yesterday that Treasury Deputy Secretary Neal S. Wolin, a tenacious and widely respected proponent of smart regulation and a key architect of the Dodd-Frank financial reform law, might be a potential candidate for SEC Chairman. But that’s not going to happen. … Wolin is much more likely to hit the final list of candidates for Treasury Secretary along with Undersecretary for International Affairs Lael Brainard. …

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Other candidates outside Treasury include Jack Lew, Erskine Bowles, Blackstone’s Tony James, Blackrock’s Larry Fink and Facebook’s Sheryl Sandberg, among others. In addition to his strong government career, Wolin also has high-level corporate experience having served as general counsel of The Hartford, a Fortune 100 financial company.

GEITHNER HEADS TO THE HILL FOR CLIFF MEETINGS — Per Treasury: “On Thursday, Secretary Geithner will meet with congressional leaders on Capitol Hill to continue discussions on the actions we need to take to keep our economy growing and find a balanced approach to reduce our deficit. … In the morning, Secretary Geithner will meet with Senate Majority Leader Harry Reid. Also in the morning, the Secretary will meet with Speaker of the House John Boehner. In the afternoon, Secretary Geithner will meet with Senate Minority Leader Mitch McConnell. Also in the afternoon, the Secretary will meet with House Democratic Leader Nancy Pelosi.”

GOP MIND MELD — From a senior GOP source on what are likely to be the party's talking points today in the fiscal cliff fight: "The president and his advisers claim that we have to raise the rates — they claim it is a matter of math. But looking at his own budget, we know this isn’t true. According to the Treasury department (page 203: http://1.usa.gov/yO1cOk), raising the top two tax rates on hundreds of thousands of small businesses, the holy grail of modern liberalism, would raise $442 billion over 10 years. The president’s own proposal to limit the value of tax expenditures would by itself raise as much as $584 billion. Even if that estimate isn’t precise relative to current tax policy, two other proposals the president put forward to claw back some of the benefits of the personal exemption and the limitation on itemized deductions would raise a combined $165 billion. So that’s a $442 billion policy he’s insisting on, and up to $749 billion of his own policies that he is ignoring — policies that do not hit the middle class, policies he himself calls 'upper income tax provisions,' and policies that do not raise statutory marginal rates."

FIRST LOOK: STRANGE BEDFELLOWS ON MORTGAGE BILL — The Financial Services Roundtable does not often agree with consumer groups like the Center for Responsible Lending. But both are signatories on letters that went to the Hill yesterday calling for an extension of the Mortgage Forgiveness Debt Relief Act, which is scheduled to sunset Dec. 31. The measure stops struggling homeowners from getting hit with a big tax bill if they execute a short sale or receive a loan modification that includes principal reduction. The measure is meant to encourage these efforts in order to reduce the huge overhang of underwater mortgages that continues to weigh on the housing market and broader economy. See the letter: http://bit.ly/Ud7yLg

FIRST LOOK II: CHAMBER’S DONOHUE ON FISCAL CLIFF/ENERGY — U.S. Chamber of Commerce CEO Tom Donohue today will address the Chamber's board and deliver remarks on how crucial it is to address the fiscal cliff and lay the groundwork for a "Big Deal" with comprehensive tax and entitlement reform. Donohue “will call on Congress and the administration to work together to keep the nation from falling off the fiscal cliff, and outline why America’s tremendous energy opportunity is part of the solution to our nation’s long term fiscal challenges.

“The Chamber has been strongly promoting the idea that a long term fiscal solution rests not only on spending reductions and comprehensive tax and entitlement reform, but also in developing our vast energy resources to drive growth and government revenues, create jobs, attract manufacturing, and bolster the nation’s competitiveness and security. Donohue will tell board members, ‘As lawmakers confront difficult decisions on spending and taxes, the appeal of American energy is only going to grow — and the Chamber is going to pull out all the stops to see that it does.”

THIS MORNING ON POLITICO PRO FINANCE — Jon Prior on Ed DeMarco’s call to reform FHA first… Dave Clarke on Daniel Tarullo’s call to strengthen regulation of foreign banks in the United States… To learn more about Pro's subscriber-only coverage — and to get Morning Money every day before 6 a.m. — please contact Pro Services at (703) 341-4600 or info@politicopro.com.

GOOD THURSDAY MORNING — Despite their best efforts to give it away in the fourth quarter, the Washington Wizards slipped up and accidentally won their first game of the season. They promise never do it again. http://wapo.st/QrDcGS

DRIVING THE DAY — Geithner heads to the Hill for fiscal cliff meetings … President Obama has a solo lunch with Mitt Romney … House Financial Services has a joint subcommittee hearing at 10:00 a.m. on Basel III capital standards (more below) … Initial jobless claims at 8:30 a.m. EST expected to dip to 390K from 410K … Second quarter GDP second estimate at 8:30 a.m. EST expected to jump to 2.8 percent from 2.0 percent on better foreign trade and inventory and construction data … Pending home sales at 10 a.m. EST expected to rise 0.1 percent

BASEL HEARING PREP — Here is the internal staff memo for the Basel III hearing: “[W]hile there is near unanimity that the capital standards should be higher, setting capital standards at the right level is not an exact science, and higher capital standards come with trade-offs … While the implementation of these standards is highly technical, these standards will have a significant effect on stability in the U.S. and global financial system.” Full memo: http://bit.ly/Y7ViCc

TOP STORY: FED TO KEEP FOOT ON THE GAS – WSJ’S Jon Hilsenrath on pg. A1: “Three months after launching an aggressive push to restart the lumbering U.S. economy, Federal Reserve officials are nearing a decision to continue those efforts into 2013 as the U.S. faces threats from the fiscal cliff at home and fragile economies elsewhere in the world. … Central bank officials face critical decisions at their next policy meeting Dec. 11-12. The most … Fed officials acknowledge that the programs aren't as powerful as they were during the financial crisis. But they believe they are still helping the economy, especially housing, and the risks are manageable …

“Since September the Fed has been buying $40 billion a month of mortgage-backed securities and looks set to continue that program. Officials believe the program has helped push down mortgage costs and spur a housing sector that is on the mend. The more urgent issue is what to do with a $45 billion-a-month program known as Operation Twist … That program ends in December and many officials want to keep buying long-term Treasurys next year as a complement to the mortgage purchases.” http://on.wsj.com/11gmCfb

OFR CAPTURED BY INDUSTRY? — ProPublica’s Jesse Eisinger: “[H]ardly anyone is paying much attention to the Office of Financial Research. … The office is looking as if it will be a tool of the financial services industry, instead of a check on it. Its main role is to serve the Financial Stability Oversight Council, providing the systemic risk overseer with data and analysis of where the nukes are buried. But the [OFR] was hobbled from the get-go by a poor design.

“It is housed in the Treasury Department, while ostensibly being independent of it. It has a small budget. And it has to report to the very regulators it is supposed to report on. … The Treasury Department sees it differently. ‘We were not looking for critics or proponents. That wasn't the goal,’ said Neal S. Wolin, the Treasury deputy secretary. ‘We were looking for people with a range of perspectives who understand keenly the systemic risks in the financial system.’” http://bit.ly/RjVqLG

** A message from Public Notice: Fiscal responsibility is the only way to jumpstart our economy and that starts with strategy to cut spending, not short-term fixes or political gimmicks. The fiscal cliff is nearly a month away, but what’s on the table and what does it mean for you? Find out in our Fiscal Cliff Briefing Book http://bnkrpt.am/Qo5NwL**

U.S. WARNS SAC ON POSSIBLE CHARGES — Reuters’ Svea Herbst-Bayliss and Katya Wachtel: “The U.S. government is considering filing civil charges against SAC Capital Advisors over an insider trading case as regulators tighten the screws around Steven A. Cohen, the $14 billion hedge fund's founder … Cohen and a top SAC executive told investors on a 20-minute conference call on Wednesday that the Securities and Exchange Commission recently had issued a formal warning called a Wells notice to the firm indicating charges are likely, according to two sources, who listened to the call. … Authorities have not charged Cohen with wrongdoing but they contend he signed off on the trades. For years, Cohen and SAC have been dogged by allegations that the firm has relied on insider information to deliver an average annual return of 30 percent since Cohen founded it in 1992. Until this point, the SEC had taken no steps toward bringing a civil complaint against the hedge fund.” http://reut.rs/110fuVc

IS COHEN WORTH CATCHING? – William D. Cohan in Bloomberg Businessweek looks at whether “It’s true that the only thing worse than allowing the bankers to get away unscathed is prosecutorial misconduct. There’s a world of difference, however, between being meticulous and careful in bringing cases and appearing to do nothing at all when trillions of dollars have been lost and not a soul has been held accountable. That doesn’t mean the government should stop looking into the misdeeds of the likes of Steve Cohen. But it shouldn’t ignore those who did worse.” http://buswk.co/stevecohen

CLIFF NOTES –

BLANKFEIN GIVES OBAMA PLAN PROPS — Per CNBC: “Goldman Sachs Group Chief Executive Lloyd Blankfein said … Obama's plans for a fiscal cliff agreement are detailed and ‘very credible’ … Regarding the prospect of higher tax rates, Mr. Blankfein said ‘I would prefer as low of a marginal rate as possible because it's the marginal rate that provides the incentive to do incremental work by people, but I'm not dogmatic — I wouldn't go to the end for that.” http://bit.ly/10YNd1i

'RESOUNDINGLY REASONABLE' – Reuters: “Executives who attended the [White House] meeting said leaders from both sides needed to compromise, and they indicated backing for an increase in rates for high earners like themselves. ‘The president and his team were resoundingly reasonable in what they had to say. They came into the meeting wanting to communicate that revenue increases are a significant part of a deal, but not the only part of a deal, and that they were also committed to an entitlement reform and spending focus,’ said Marriott Chief Executive Arne Sorenson. ‘I think generally people had the view that, if it's balanced, if there are revenue increases that are part of it, that's fine, but don't only talk about revenue increases. Make sure we're talking about both.’”

IGNORE INCREMENTAL HEADLINES — Sean West of the Eurasia Group: “Big ticket negotiations often appear stillborn, move forward in giant steps and then crawl to a finish. While the sides remain far apart today, significant distances can be narrowed quickly once real haggling begins — which could be as early as next week…. There may only be one or two breakthrough moments on the path to a deal. … Each party's staff is preparing menus of options that their leadership can consider. … There is buzz that such a [GOP revenue] proposal will come early next week, though there seems to be significant internal Republican debate about exactly what sort of tax base broadening to offer.”

GROVER NORQUIST GETTING MORE MELLOW? – POLITICO’s Kate Nocera: “Grover Norquist, long the most feared man in Republican politics, says members of Congress have no reason to be afraid of him. Based on what the anti-tax crusader said in a lengthy interview with POLITICO on Wednesday, he might actually be right. The typically unbending Americans for Tax Reform president … showed a more flexible, nonthreatening side at a Playbook Breakfast with Mike Allen. Norquist said House Speaker John Boehner (R-Ohio) and other Republicans need to fight mightily for deep spending cuts and against taxes. But the anti-tax evangelist steered clear — subtly but noticeably — of declaring war on members of Congress who might ultimately back a deal that includes higher taxes.

“To be clear, Norquist wasn’t shrinking away from the pledge or his hard line on taxes. Instead, he skillfully dodged Allen’s questions about what kind of tax increases Republicans could agree to without breaking the pledge. Norquist said that by having negotiations in public, Republicans would be able to ‘change the playing field’ from raising taxes to holding Democrats’ feet to the fire over spending cuts. Republicans could have the upper hand by challenging President Barack Obama on not cutting spending.” http://bit.ly/V4Bkk7

GEITHNER DEPLOYED — FT’s James Politi, Robin Harding and Stephanie Kirchgaessner in Washington: “Obama has dispatched … Geithner … for a series of meetings on Thursday with leaders of both political parties in a bid to jolt negotiations to avert the fiscal cliff [ http://on.ft.com/TPD3sl]. Mr Obama’s move comes as the Federal Reserve reported that alarm about the looming tax hikes and spending cuts was spreading across a swath of US business, based on the central bank’s regular collection of anecdotal reports … In a sign that negotiations are intensifying, Mr Geithner and Rob Nabors, a top White House official, will on Thursday morning meet with … Boehner … as well as senior House Republicans including Paul Ryan …

“A spokesman for Mr Boehner suggested the gathering had the potential for real progress. ‘We accepted this meeting with the expectation that the White House team will bring a specific plan for real spending cuts — because spending cuts that Washington Democrats will accept is what is missing from the ‘balanced approach’ that the president says he wants.” http://on.ft.com/SuT3Ta

FOCUS ON TAXES, NOT SPENDING — NYT’s Peter Baker: “Obama says he wants a ‘balanced’ approach to restoring the nation’s fiscal order. But the high-profile public campaign he has been waging in recent days has focused almost entirely on the tax side of the equation, with scant talk about his priorities when it comes to curbing spending. … In public statements since his re-election, he has barely discussed how he would pare back federal spending … While the president’s aides said it was important to engage the public on taxes, others say he has not prepared the country for the sacrifice that would come with lower spending … White House officials rejected Republican suggestions that Mr. Obama has not been serious enough about tackling the growth of entitlement spending.” http://nyti.ms/U3MJ2x

BOEHNER: LET’S STAY TOGETHER — POLITICO’s Jake Sherman: “John Boehner had a message for House Republicans Wednesday morning: stick together or be left out. The Ohio Republican privately urged his House colleagues not to waver from their position to keep tax rates frozen, calling it a ‘principled position.’ ‘It’s important that everyone in this room continue to be clear with our constituents about what that position is,’ Boehner said in a closed meeting of the GOP Conference. … Boehner said his party should be ‘calling out the Democrats in Congress who are saying no to spending cuts, and saying we should go over the fiscal cliff.’" http://bit.ly/Y80HJA

ALSO FOR YOUR RADAR –

CORKER OPPOSES TAG EXTENSION – Per release: “U.S. Senator Bob Corker, R-Tenn., a member of the Senate Banking Committee, today announced his opposition to further extension of the Transaction Account Guarantee Program, which expires at the end of the year. The temporary measure established during the 2008 financial crisis provides unlimited federal insurance for noninterest-bearing business accounts. … ‘It's time to move beyond this period of unprecedented government support of the banking industry, and so I am opposed to any more extensions of this limitless guarantee program,’ said Corker.”

TRAVELERS LAUNCHES DEFICIT EDUCATION EFFORTS — Per release: “Amid all the conversation on the fiscal cliff, Travelers and CEO Jay Fishman are taking a different approach: the company, in partnership with Susie Films, has underwritten a new documentary. … Led by The Travelers Institute, the company's public policy division, Travelers has collaborated with public television to present ‘Overdraft’ a one-hour, nonpartisan documentary that highlights the growing U.S. deficit and its critical implications for individuals and U.S. economic competitiveness. Travelers has also launched a national University Symposia Series to facilitate the conversation” Documentary: http://travl.rs/V7kTnk

CHINA BANK OFFICIAL SLAMS U.S. TAX AVOIDANCE LAW — Reuters: “Liu Xiangmin, deputy director general of legal affairs at People's Bank of China, said the U.S. should find a better way to tackle tax evasion than the Foreign Account Tax Compliance Act (FATCA). Liu was giving a speech on the foreign impact of financial regulation. He also noted the challenges posed to foreign banks by some of the regulation contained in the U.S. Dodd-Frank Act, such as the Volcker Rule. …

“The rule bans banks from engaging in proprietary trading and will apply to many foreign banks if they have a branch in the U.S. ‘The Volcker Rule seems to be intentionally designed to apply to a broad range of foreign institutions in order to level the playing field for U.S. entities subject to the rule.” http://reut.rs/SuQm3S

** A message from Public Notice: Public Notice is an independent non-profit dedicated to providing facts and insight on the economy and how government policy affects Americans’ financial well-being. Through education and awareness projects, Public Notice engages Americans on today’s policies, to avoid tomorrow’s problems.

We’re more than $16 trillion in debt and millions of Americans remain unemployed. Now we are staring down a tax increase if Washington can’t iron out a plan to address the debt and deficit. Americans have already tightened their belts. It’s time for Washington to do the same. Hardworking Americans shouldn’t have to bail out Washington’s waste with a tax increase. It’s unfair for taxpayers to pay more so Washington can waste more. Spending cuts are the only way to spur a sustained recovery and get the economy back on track. Learn what Congress is proposing in our Fiscal Cliff Briefing Book http://bnkrpt.am/Qo5NwL**

** A message from the Independent Community Bankers of America: The first U.S. community banks were formed in the wake of the American Revolution to stabilize the nation’s postwar finances. By providing loans to entrepreneurs and developers, these community banks were soon stimulating economic growth and financing the rise of the world’s greatest democracy. Their legacy of relationship banking and local economic and job growth continues to this day, with more than 2,500 of the nation’s community banks in business for more than 100 years and the oldest dating to the presidency of John Adams. Today serving communities in every congressional district, community bankers nationwide urge Congress to advance tailored banking regulations that will allow these job creators to continue supporting local economic growth for decades to come. www.icba.org/aboutus **

Authors:

About The Author

Ben White is POLITICO Pro's chief economic correspondent and author of the “Morning Money” column covering the nexus of finance and public policy.

Prior to joining POLITICO in the fall of 2009, Mr. White served as a Wall Street reporter for the New York Times, where he shared a Society of Business Editors and Writers award for breaking news coverage of the financial crisis.

From 2005 to 2007, White was Wall Street correspondent and U.S. Banking Editor at the Financial Times.

White worked at the Washington Post for nine years before joining the FT. He served as national political researcher and research assistant to columnist David S. Broder and later as Wall Street correspondent.

White, a 1994 graduate of Kenyon College, has two sons and lives in New York City.